"It's Time for a Cool Change!" MHC Industry Maverick Promotes a New Industry Vision

Interview by Tony Kovach

Part of the Klarchek vision for revitalizing Capital First Realty's Sterling Estates location was to make a bold visual statement at the entrance with this stunning, multi-million dollar cluhbouse, stone fencing, gated entry and guard house.

"When the increasing vacancy issue hit us like it did most of the Manufactured Housing Community Industry - earlier this decade, we gathered our senior people together to discuss a new strategy." began Richard J. "Dick" Klarchek. "With many of our properties in metropolitan areas - which naturally means higher site fees than more rural communities - we realized we had to offer something more upscale if we were going to keep these (properties) as Manufactured Housing Communities. Because we believe in the affordable quality lifestyles manufactured housing provides, we didn't want to go the route of turning older 'mobile home parks' into some big box store location."

"What this meant in practice was that we had to offer our existing and incoming residents something more, something better than the old metal on metal living conditions that 40 or 45 year old locations had become. We knew that the industry had this image issue too - and part of that image issue is the - let's be honest - lack of appeal that those smaller, single section, pre-HUD Code metal on metal mobile homes represented. In short, many signals told us we should strike out in a new direction, and that is precisely what we then planned and set out to do!" Klarchek said.

601 Sterling West at Capital First Realty's redevelopment of Sterling Estates

"As we approach winter, the temperatures naturally fall, and that is what has been happening to our industry - the temperature has been falling pretty fast for a decade now. Well, we know that it's time for a cool change!" Klarchek exclaimed. "We need our own planned version of positive global warming! Something appealing to consumers that will heat up interest in our industry homes and the MH community lifestyle; thus re-energizing this otherwise declining world of manufactured home sales!"

One view of the events Great Room at Sterling Estates. To get a sense of the size of this space, the vaulted ceiling peaks at about 21'. Custom chandeliers and genuine art are showcased.

"At metro properties such as our Sterling Estates location, off Interstate 294 in the Justice, IL zip code, we began by letting those older 'mobile homes' go when the opportunities arose. When someone abandoned an older pre-HUD Code house, we tore it down and hauled it off. When someone wanted to upgrade, we'd help them get into a quality, appealing new home built by Liberty, Hart Housing, Fall Creek, Commodore, Redman or more recently Hi-Tech Housing. Then we invested millions of dollars in building a new country club style custom resident clubhouse. Picture 8000 square feet of pure custom quality in a clubhouse, not tucked back in the middle or back somewhere, but up front, by the gated entry! This sends prospects pulling up to our gate for the first time the message that: 'this is no 'mobile home park, this is quality living!' We emphasize this new reality by offering Cape Cod style homes as well as ranch style homes. The first Cape Cod a prospect or resident sees is located just beyond this glorious new resident clubhouse, so it can easily be seen even when someone is behind the entry gate."

9 Ironwood - this home is located just past Sterling Estate's new 8000 square foot clubhouse.

How has this approach you've used at Capital First Realty's MHCs been received by the public?

"Great question!" Klarchek replied. "Let's let the facts speak for themselves."

"As noted, we've been doing improvements and upgrades for some time. Last year, in 2008, we made some mid-year adjustments in our marketing at Sterling Estates, to better promote this more residential subdivision community lifestyle. The results were simply amazing, even to us. We went from 2 new prospect calls a day at this focus property, to 5 daily, then 10 then 15 new inquiries on good days. With a strong finish to the year, we ended up with 212 closed contracts at Sterling Estates in 1 year! Our top sales person actually did 112 closings solo…imagine, one person doing about 3 to 4 times what the typical MHI retail member location does monthly today!" Klarchek stated.

"This year, we built on those results. By putting even more focus on marketing the message that we offer 'quality, appealing homes and lifestyles.' We purposefully reached out to not only the traditional 'mobile home customers,' but also the residential housing prospect too! We do use sources such as ManufacturedHousingSource.com and MHVillage.com, to name a few. But one of our key efforts is to go after the residential customer! Stop and think, why should we (in the MH industry) all fight over that 4-5% market share of the housing market that manufactured housing has sadly been relegated to in recent years? At Capital First, we go after the business that site builders and realtors traditionally have instead! We go head to head with them, and while we don't win every client, we win more than enough to make it worth it! Given the new economic dynamics, we make more sense than ever, and the timing, while difficult for the nation, is a huge potential opportunity for our industry. The time for this bold approach is right here, right now!"

Finishing touches like the driveway and sidewalk were pending when this photo was taken.

"Let's be honest," he continued, "when people see the photos of a two level Cape Cod, they aren't thinking 'mobile home,' they aren't using the 't-word!' They are thinking…wow, that's a great looking home, and get a load of that price! You can imagine a spouse looking online or holding a good newspaper story saying, 'Mama, grab your coat, because we are going to look at an incredible home value today!'" Klarchek said with a smile.

A thumbnail of an August 5, 2009 article in the Chicago SunTimes Newsgroup featuring Sterling Estates. This story was the key to a record 111 calls to the property the day it hit the papers. Capital First Realty has had articles in the Senior Connection, Southtown Star and Pioneer Press in 2008 and 2009, as well as an article in the July 2009 issue of Manufactured Home Merchandiser Magazine.

"Do all our prospective clients 'get it?' Of course not. Do all of them understand that we are redeveloping the location and that it takes time to phase out older units - so you are respecting those existing residents - while phasing in these beautiful new homes? Not all are ready for that idea. But we get more than enough to make this bold, new approach and vision worth while! At Sterling, we are now within months of finishing the refill of the community, using this bold transition from mobile home park into a modern subdivision style gated community."

This is different! Okay, how have your sales people responded to this new marketing approach?

"It depends on the open mindedness, skill, determination and flexibility of the individual sales associate." Klarchek replied. "Some sales people stuck in old ways can't handle it - and it doesn't take long to discover that reality. Others have done or are doing comparatively amazing things with this approach. For example, last spring, with three sales consultants, they closed 75 contracts in 90 days. Now that's selling! So we have to develop sales people who become adept at this new marketing and sales approach."

"By the way, another implication of this is that we can get a true value for our homes, not based on giving houses away - as some in the community business have done in recent years - but rather precisely because we are focused on comparisons to conventional housing, we can get a more realistic return and still sell product. What this means in practice is that we can sell manufactured homes at our Justice location starting in the 80s and up to the 180s. By contrast, less than a mile away, an old, ugly metal on metal mobile home park sits by the roadside will sell an older metal on metal mobile home for maybe $3000! People vote with their feet and with their wallets. We are outselling everyone around us, regardless of what type construction they offer! So using this total approach means that while some in the manufactured housing industry are giving their houses away at or near cost, we make a good profit on most every home, most every time."

Single section manufactured home, sold unfurnished for $80K+ to a cash buyer

Are there road bumps in this process you're outlining?

"Yes, of course - nothing is perfect in this world and this takes energy, vision, resources, financing, good people and hard work!" Klarchek said.

"For example, I can't imagine some of the people who own one or more - I'm going to use the term deliberately here - mobile home parks, doing what we are doing unless they are ready to invest sizeable sums in the future of their property. You have to upgrade utilities, pour new foundations that meet the new standards and that costs thousands of dollars per site."

"Then, you build this glorious multi-million dollar clubhouse, the $300,000 wrought iron fenced protected children's playground and even enhance the mail boxes stations where they match the clubhouse at a cost of $100,000 per station! Then, you bring in quality, new appealing homes. We aren't talking 90" sidewalls here, we are speaking of 9' sidewalls, crown molding, transom windows, tray ceilings, upgrade cabinetry…get the picture? If you are smart, you furnish and decorate a few of these. Then you landscape it, pay the floor plan interest, and have to arrange the retail financing! Then you need the sales staff, marketing support, community and logistical people, the credit department and so on. Don't get me wrong, we are proud to be doing this! We believe this is cutting edge for redeveloping a community in a metro area! But the point I'm making here is this: the small mom and pop operation can't even dream about doing this. It takes a large professional organization with resources to think seriously about this approach. But if you do it, this pays off in more ways than one!"

Interesting…so if you were one of those mom and pop sized operations and didn't have the resources, what would you do?

"Frankly, I think you'd have to seriously consider either teaming up with someone who has the resources - plus hiring the people who can pull this program off - or you'd want to sell out to someone willing to do what we are talking about. It just takes someone with great resources and a vision to make this work, but once you turn the corner, you are now positioned for the future instead of looking at a path that leads no where but down." he replied. "Think about it, if you closed a park and sold it to a condo redeveloper, they'd have to go through all kinds of drama to make that happen too! Our industry has to have the commitment to put our resources and money to work, and when they do that and present that to the public in bold, new ways, you can count on people calling, coming and buying!"

So are there signs that the public is more accepting of manufactured homes when you offer this sort of approach?

"Absolutely!" came Klarchek's instant reply. "First, as I noted, we have seen a dramatic uptick in calls and closed business. Yes, we've been through some ups and downs, depending on how sales people adjust to this new style of marketing and selling. But our downs would be the envy of many people in the industry. We went down to closings in the teens monthly for a while this year - new sales people, fatigue, other changes, etc. - but we've done 20+ closings monthly for most of 2009 at our Sterling Estates location. But the traffic from marketing remained solid the whole year. Another indicator is that the local media has given us quite a bit of coverage, because people want to be able to share positive housing news, and we have it to share! On a couple of occasions, when a good newspaper story came out, we logged 70 calls on that one day at that given property. A few weeks later, at Sterling Estates, we were fortunate to get another good story in the paper, and we had 111 calls in a single day on that occasion. There was literally no way to keep up with the call volume!"

Logged new lead calls at Sterling Estates week of 8-2 to 8-8-09. Because of the high call volume, the number of 'repeat' calls was up, due to very busy sales people and phone lines

if you had it to do over again, would you still do this bold upscale redevelopment process here in the Chicago metro?

"Unquestionably." Klarchek states. "When we look at housing shipments and look at our purchases, we appear to be the bulk or the largest number of new homes sold at our target property states. We talk with others in the industry. I've not spoken with anyone about our size that has similar (new home sales) results to ours; certainly not in our (market) area."

"Let me give you a specific example. Late last spring, as I alluded to above, we had a brief period where our sales productivity went down, even though our leads were still coming in strong. I had some research done, contacting sales trainers and telephone consultants to see how we could improve our then transitioning sales team more rapidly. One of the nationally known MH industry consultants essentially said words to the effect that, 'no one in the country is getting 150 calls a week, no one is closing 15-25 contracts monthly at a single property. I can't help you and no one else can either, because what your team is doing is incredible.'"

Weekly call recap - Sterling Estates - 8-23 to 8-29-09

"Now imagine, if I called that trainer back and said, 'Well today we are doing even more! Now we have a single sales person who closes 15 transactions a month or more, plus what the rest of the sales team does is extra! During the pre-back to school/end of summer season period, we were getting 200+ calls a week at Sterling Estates alone! They'd think we are nuts, liars or worse, but it's all true."

Weekly call recap - Sterling Estates - 9-6 to 9-12-09

What are your thoughts on how the MH industry as a whole could move itself ahead? And would you favor the much ballyhooed 'Go RVing' style national industry image campaign?

"Good question. First, let's admit that some (in the industry) don't want to see that campaign happen for their own reasons."

"Having said that, I believe it's obvious that anything that improves our (industry) image is a good thing. What we've learned in this redevelopment process - particularly during this more aggressive marketing effort in the last 16 months - is this. If you have the resources and financing, if you showcase the quality and appeal that the industry can produce today, you can sell, sell, sell!"

"Is there a cost to these upgrades, merchandising, marketing and financing? Sure, but the return way outweighs the investment! Once you commit to this program, you are now getting an ever bigger share of the broader housing market! You're not stuck with 4-5% market share, like the industry presently has in most parts of the U.S."

"So if you could pool enterprises together for a synergistic focused-area marketing effort, if they shared the ideal of having appealing locations, great homes, the financing, good people and so on - then you could pool marketing dollars and create low cost, high return campaigns."

"If the marketing has a disconnect between the message and the experience, the results are going to be diluted."

"So if industry associations or groups do band together for a marketing effort, you want seasoned industry pros doing the work, people who know how to make every dime of marketing scream dollar. I can imagine how a Madison Avenue type marketing campaign could not only be costly, but could end up counterproductive. Our industry has a terrific story! It should be showcased! We should get on our soapbox and share what's great and new about factory building today. Talk about the realities and challenges candidly, show what's appealing and then let people know where you are going! That has worked and is working for us, and I think that could work well for others in most parts of the U.S."

"Mr. Klarchek's generosity in support of one of the most advanced libraries in the nation speaks to his dedication to Loyola and its community of learning," says Michael J. Garanzini, S.J., president. The Richard J. Klarchek Information Commons is named for the University regent and trustee - pictured above at the front right - whose lead gift is an expression of his commitment to the Loyola community of learning. It's said that The Richard J. Klarchek Information Commons is the greenest or most environmentally efficient building in Chicago.

Richard J. "Dick" Klarchek is the owner and President of Chicago-based Capital First Realty. Klarchek's family owned firm has 30+ years of successful experience in the manufactured home community business. www.CapitalFirstRealty.com